CFD Trading & Tips
What is it about?
A CFD is a financial instrument that allows investors to speculate on the global financial markets. The underlying asset of a CFD can be a Forex currency, an index, a stock, or even a cryptocurrency asset. CFDs are able to mirror the price fluctuations of any market by allowing investors to trade in both directions.
CFD trading offers some unique advantages to world traders. However, there are also some disadvantages. For example, carry traders and scalpers cannot implement their strategies by using CFDs.
Selecting the right CFD broker is very important, as there can be significant differences between the trading conditions of different CFD brokers.
Trading the Foreign Exchange means buying a currency and at the same selling another. There are hundreds of reasons for a currency to appreciate or to depreciate against another currency. In this truly complex and dynamic trading environment these are some important tips for all Forex traders.
The general goal of a Contrarian Trader is to buy under-performing assets and to sell over-performing assets.
What is the Contrarian Trading?
Contrarian Trading means betting on the opposite side of the prevailing market trend. A contrarian trader is based on the belief that the mass is usually wrong about how the market is going to perform. In other words, he claims that the majority of traders tend to buy the market at its peak or to sell the market at its bottom. For all those experienced with trading, this is not far from reality.
What is the goal of a Contrarian Trader?
The general goal of a Contrarian Trader is to buy underperforming assets and to sell over-performing assets. Given neutral news most of the times the under-performing assets will go up and the over-performing assets will go down.
Contrarian Strategy and Forex Trading
When a trader opens a long/short position in the Forex market forecasts that more traders will be tempted to open positions in the same direction in the near future. But the market is not driven by retail traders it is driven by major institutional traders. Retail traders tend to open positions that are not followed by institutional traders. Institutional traders tend to trade against the masses. So the key for a contrarian trader is to think like an institutional player, not a retail one. But let’s see a broader approach to the contrarian strategy.
Going the other Way of the Diminishing Demand
If most market participants believe that the price of an asset will rise then they already bought that asset. At a certain point, the demand equals the supply. After that point, the demand is diminishing while the supply remains stable so the price of this asset will consequently fell. This situation is particularly true after a news release. Contrarian traders are using a wide selection of market sentiment indicators to define how the mass is trading. Below in this article, you can find a list of market sentiment tools and indicators.
The Human Psychology
Our human nature is based on prehistoric instincts, fear and greed are two of them. Traders have the tendency to become greed at the peak of the market and to be feared close to the market’s bottom.
◙ Buy when other traders are feeling fear and sell when other traders are greed
Baron Rothschild sometime said "The time to buy is when there's blood in the streets".
The Most Successful Forex Traders Ever
These are considered some of the most successful Foreign Exchange traders ever:
■ Andy Krieger
■ George Soros
■ Bill Lipschutz
■ Stanley Druckenmiller
Andy Krieger is a Forex trader that made a lot of money by trading the New Zeeland Dollar or else the Kiwi. In 1987, the US Dollar faced enormous selling pressure and consequently, the other major currencies became fundamentally overvalued. Exactly that time, Andy Krieger placed very large selling orders on Kiwi. He achieved to sell more currency than the New Zealand could even supply (money supply) and by this way, he managed to gain billions of US dollars. He used the power of derivates (options) to leverage his funds and to achieve the Kiwi crush.
George Soros is one of the most famous investors in the world. He was born in 1930 and graduated the LSE (London School of Economics). George Soros in 1992 managed to gain 1 billion US dollars from a single transaction in just one day. He is known as the man who managed to “Brake the Bank of England”.
Bill Lipschutz was born in New York in 1956. He is a Forex trader and the co-founder and Director of Portfolio Management at Hathersage Capital Management. He was awarded B.A. in Cornell College in Fine Arts and Masters Degree in Finance. Originally Bill Lipschutz was a Stocks trader, but afterwards, he became a Forex Trader. Bill Lipschutz managed to make over $300 million from Forex Trading in a single year.
Stanley Druckenmiller started his career as an oil analyst for the Pittsburgh National Bank and in 1988 started to work for George Soros.
Druckenmiller made his first grand trade after the collapse of the German Wall. Firstly he bought the German mark and after he bought German Bonds against the German Stocks. During that particular day, he managed to make 1 billion US dollar. This trade was in accordance with the attack of George Soros in the British Pound.
◙ Hedge Funds Market Wizards 2012
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